New report: the U.S. economy

The period covered in our new annual report, 2001 to 2010, was noteworthy for its weakness nationally. The expansion from 2001 to 2007 was anemic, with low rates of job and income growth, largely driven by the unsustainable housing and construction bubble; then followed by the worst downturn since the Great Depression and a tepid expansion since 2010.

From 2001 to 2010, the country lost 1.8 million jobs. What was gained between 2001 and 2007 was lost, and then some, from 2008 – 2010. (Job gains in 2011 and so far in 2012 have been modest.) In terms of income—our primary focus—growth was slow. And as we explore in more detail below, most of the gains came from transfer payments rather than employment earnings or investment income growth. For the country to do well—to become more prosperous—those trends will have to be reversed. Slow private sector employment and employment earnings growth, combined with strong transfer payment growth, is not a path to a sustainable rising standard of living.

Employment and Wages

In 2010 there were 127.8 million jobs in the United States, a decline of 1.8 million (-1.4%) from 2001. Underneath the poor jobs record of the decade is the continuing divergence between the high and the low education attainment sectors.

Employment in the high education attainment sectors was 56.2 million Americans in 2010, a growth of 3.1 million jobs (5.8%) from 2001. But the job growth was narrowly focused in health care and education, whose high education attainment industries added 3.7 million jobs, rather than the more broad-based expansion seen in all sectors of the knowledge-based economy in the Nineties. In the low education attainment sectors employment was 71.6 million in 2010, a decline of 4.9 million jobs (-6.4%) from 2001.

The same story, high education attainment industries growing and low education attainment industries declining, holds for average wages as well. The average wage for all jobs in America in 2010 was $46,749, a gain of 4.8% from 2001. In the high education attainment sectors the average wage was $62,052, a gain of 6.2%. In the low education attainment sectors the average wage was $34,732, a decline of 0.7% from 2001.

The gap in the average wage between the high and low education attainment sectors grew from $23,469 in 2001 to $27,320. In 2010 the average worker in the high education attainment sectors had wages nearly 1.8 times that of the average worker in the low education attainment sectors.

Personal Income

Per capita income in America in 2010 was $39,937, a gain of $1,574 (4.1%). But, the underlying source of that income gain is very worrisome, with a big decline of real private sector employment earnings per capita from 2001 – 2010 masked by the even larger income gains from government––either government employment earnings or, most importantly, transfer payments.

Private sector employment earnings per capita in 2010 was $23,700, a loss of $1,178 (-4.7%) from 2001.

Government employment earnings per capita in 2010 was $5,310 a gain of $713 (15.5%) from 2001.

Personal income per capita from interest, dividends and rent was $6,693, a loss of $122 (-1.8%) from 2001.

Transfer payments per capita in 2010 were $7,415, a gain of $2,184 from 2001 (41.8%).

The dramatic growth in transfer payments was accompanied by a sharp increase in the share of the population who were poor or nearly poor. In 1999, 20.9% of the U.S. population had an income that was less than 1.5 times the poverty level. By 2010, this value had increased to 25.0%. We have become increasingly poor and more dependent upon transfer income, not a good start to the 21st Century

The share of per capita income by component in 2001 compared to 2010 are:

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.